Receiverships new option for condo associations

As condominium foreclosures have multiplied in South Florida, condo associations have borne the brunt of the problem, with residents left behind forced to pay higher fees to fill the condos’ coffers.

While banks slowly process foreclosures and legislators propose solutions like a condo police force to respond to housing fraud allegations, several associations have gone ahead with another tactic — asking for receivers to be appointed to collect rent from delinquent unit owners, a move more commonly seen in New York.

“We can do this on an emergency basis and sometimes get a hearing within a day, [and] we start collecting rents that day. Even if the foreclosure [then] takes [a long time], we don’t care how long it takes,” said David Arnold, whose law firm, North Bay Village-based Association Law Group, has filed to have receivers appointed for condo associations at the Oaks at Miami Gardens and Bella Luna in Miami, and has prepared the documents for several more receiverships.

Legally, condo associations have long been allowed to foreclose on unit owners who have chosen not to pay their association fees, instead renting out their units and keeping all of the income for themselves, said Seth Heller, the court-appointed receiver for the Oaks at Miami Gardens. But the costs of foreclosing on a single unit were prohibitive for many associations.

“The idea of a receivership for the entire [condo complex] that falls under certain guidelines, as opposed to doing one [for one unit],” is new, Heller said, and more cost-effective.

After a receivership is set up for a particular association, “any unit that goes into foreclosure that has a renter in it is automatically included under the umbrella…on behalf of the association,” said Ken Arnold, David Arnold’s son and the founder of Association Financial, which manages accounts receivables for condo and homeowner associations. The umbrella receivership can last forever.

Both Arnolds said they expect the receivership system to result in significant savings for condo associations. Heller said it’s still too early in the process to know for sure. “There’s not a lot of monies that have come through on the receivables end,” he said, for the condos he’s working with.

And in some foreclosure-riddled condominiums, the unit owners aren’t even bringing in rental income that a receiver could collect for the association. Still, the receiver is “a start,” David Arnold said.

“If you have a high delinquency rate, if you can reduce it by 10 percent or 20 percent, it’s a big help,” he said. “We have so many people that are upside-down at this point.”